NEW YORK -- Cash or credit? For more Americans, who have already maxed out their credit cards or are just trying to manage their spending better in the tough economy, the answer is increasingly the old-fashioned one.

Retailers like Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co. are noticing a marked shift away from credit cards in favor of cash and debit cards. A big factor is less credit available as major card issuers cut spending limits and raise fees even for customers who pay their bills on time.

The shift ends Americans' long love affair with credit cards and is one of the changes in consumer behavior that has emerged since the financial meltdown that could depress consumer spending this holiday season and affect shoppers' habits long afterward.

Particularly during holiday seasons past, shoppers could count on a pile of plastic to give them the extra financing needed to splurge on presents before they had to face the bills in January or later.

But even when the economy recovers and credit loosens up, analysts say Americans -- shaped by what could be a deep and long-lasting recession -- are likely to stick with buying only what they can afford just as their parents or grandparents did after the Great Depression.

"I think this is a new way of life," said Robert Smith, of Loves Park, Ill., who along with his wife has been using cash and debit cards to finance their spending, including vacations, since they paid off their credit card debts in July. "I like to be able to know that we paid for something. I hate monthly payments when you use a credit card."

Smith, who has four children ages 7 to 13 and owns a motivational training company called Drive and Grow Rich, says his business is down 20 percent this year, and since he is saddled with a mortgage, he doesn't want to get back into debt.

While the credit crunch is teaching consumers to be more "financially prudent," it's creating a lot of pain for both consumers and stores, said Curtis Arnold, founder of CreditRatings.com.

One sign of how strapped consumers are for credit -- and buying only what they have the cash for -- is that for the first time in 17 years, Penney's has seen swings in spending around payday cycles over the past three months.

That's common for discounters like Wal-Mart, but a rarity for a mall-based department store -- suggesting that Penney's middle-income customers are feeling the pinch as well. Penney's President and Chief Merchandising Officer Ken Hicks noted that the chain hasn't seen swings in spending around payday since about 1991, when the U.S. was entering a recession

At Wal-Mart, the volatility in spending around payday -- a drop in spending in the days before, followed by spending bursts right afterward -- has become even more pronounced since September. Chief Financial Officer Tom Schoewe told The Associated Press that shoppers are now unable to buy even necessities in the few days before payday.

Such swings became more dramatic last fall, but subsided when shoppers received their government rebate checks this past spring.

Eduardo Castro-Wright, president and chief executive of Wal-Mart's U.S. division, told investors last month that credit card payments as a percentage of total payments fell 7.4 percent so far in the current fiscal year, which ends in January. That's a big reversal from the robust double-digit growth rates in credit cards over the past three years, he said.

Target executives told investors late last month that it's seeing lower credit card usage among its shoppers for the first time since 2001-2003.

At Penney's, Hicks said that use of the company's store credit card was flat during the third quarter. The use of credit cards issued by other parties declined by a couple of percentage points as a percentage of overall payment, he noted, while cash was up by the same amount. Hicks said he hasn't seen a decline in credit card use in five or six years.

Scott Hoyt, senior director of consumer economics at Moody's Economy.com. said that Federal Reserve data has never shown an annual decline in credit card use, but he acknowledged that there isn't any solid payment data. Visa Inc. said that debit card growth is coming at the expense of cash and checks versus credit cards. And MasterCard Worldwide said consumers are increasingly paying with plastic -- debit or credit -- at the expense of cash and check, but didn't break out which portion was debit cards.

But many Americans are using cash or debit cards because they are being forced to. Laura Nishikawa, an analyst at Innovest Strategic Value Advisors Inc., a New York investment research firm, said that based on data from Visa, Master Card and American Express, the number of credit cards that consumers have fell 5 percent in the second quarter from the first quarter. That was mainly because consumers received fewer credit card offers, she said.

For years, consumers tapped into inflated home equity and used credit cards to finance their spending. Now those spigots are being shut off, and job losses are mounting.

"Consumers are really struggling to find sources of cash to make purchases," Hoyt said. "The rapid job losses are taking a big bite out of labor incomes. Obviously, it's making it much more difficult to borrow."

Doug Scovanner, Target's chief financial officer, told investors on Nov. 17 after disappointing third-quarter results that credit tightening across all U.S. card issuers "has already had a very important adverse effect on our sales, and I'm sure it will continue to do so."

Target is further tightening finance terms for its card holders as it confronts increasing defaults, and has promised investors that it will become even more stringent if credit conditions keep getting worse.

But Target and other stores are finding themselves in the awkward position of wanting to tighten their credit terms to protect profits while at the same time realizing that such moves could depress spending, Arnold said. So many stores are dangling generous interest-free finance offers and offering deep discounts of up to 20 percent if you apply for a credit card, he said.

Target is offering a 10 percent discount for new credit card holders, while Bluenile.com has teamed up with Bill Me Later to let customers delay payments for 90 days on purchases of $250 or more.

But don't expect Smith, the entrepreneur, to bite. He's sticking with his $2,000 holiday budget, much lower than the $6,000 he spent last year on gifts. He added that he and his wife are setting aside the holiday money in a separate account so they won't go over budget.

And James Coyne, a 27-year-old full-time college student from Grand Forks, N.D., recently bought an engagement ring at a small jewelry store for $3,000 in cash because he doesn't want to rack up any debt.

"I have heard all these horror stories," said Coyne. "I save my money until I can afford it."

***More information

Cash not yet king again, but coup may be coming

This holiday season, cash is in vogue again as consumers -- maxed out on credit cards or trying to stick to a budget -- are buying what they can actually pay for. Stores like J.C. Penney Co., Wal-Mart Stores Inc. and Target Corp. are noting a decline in credit card use as an overall form of payment, in favor of cash or debit cards.
The details:
CREDIT CLAMPDOWN : Since the financial meltdown accelerated in September, credit card issuers are further tightening their standards. A survey by the Federal Reserve released Nov.3, found that a sizable percentages of banks had "continued to tighten their lending standards and terms on all major loan categories over the previous three months." Nearly 60 percent of banks responding to the survey said they had tightened lending standards on credit card debt.
IMPACT ON RETAILERS: The trend is worrisome to retailers since paying in cash limits spending. Many stores are coming out with generous interest-free financing offers to make it easier for shoppers to splurge. Meanwhile, some upstarts are seeing new opportunities. Marwan Forzely, president and CEO of ebillme.com, an online option that doesn't require a credit card and allows Web shoppers to pay for purchases through their online bank accounts -- says he expects to quadruple sales volume and the number of retailers he signs up as partners this year.
IMPLICATIONS FOR SPENDING: Buying what you can afford could be a new way of life for shoppers, who account for more than two-thirds of economic activity. Experts say the changes in consumer behavior may last long after this downturn and Americans are likely to stick with the more prudent ways of their parents or grandparents.
--Associated Press